SEC v. Rahulkumar M. Patel; and Rahul Patel, No. 3:21-cv-00994, District of Connecticut (July 21, 2021) — Complaint

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UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

SECURITIES AND EXCHANGE
COMMISSION,
    Plaintiff,
 v.

Rahulkumar M. Patel,
  aka Rahul Patel,

    Defendant.

Civil Action No. 21-cv-

JURY TRIAL DEMANDED

COMPLAINT
 Plaintiff, Securities and Exchange Commission (the “Commission”), alleges the
following against the defendant:
SUMMARY
1. This is a securities fraud enforcement action.  Defendant Rahulkumar M. Patel,
aka Rahul Patel (“Patel”), devised and executed a scheme to defraud investors through a private
offering to purchase membership units, specifically referred to as securities, in a purported hotel
venture that Patel controlled (“the hotel renovation project”).  Patel’s fraudulent scheme began as
early as February 2018 and continued well into 2020.  Between October and December 2018,
Patel raised approximately $2,750,500 from 70 investors who purchased membership units in
DNA Lodging East Hartford LLC (“DNA East Hartford”), Patel’s limited liability company.
DNA East Hartford, through Patel, represented to investors that it intended to use their invested
money to lease, renovate, and reopen a hotel.  Instead, Patel used material misrepresentations and
omissions, and a device, scheme and artifice to defraud, and diverted at least $925,000 of
investor funds for his own personal benefit.

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2. Patel initiated the fraudulent offering using a September 21, 2018, 50-page private
placement memorandum (“PPM”) for which he was a primary drafter and editor.  The PPM set
out the purported terms of the investment and the proposed hotel renovation project.  Patel
provided the PPM, along with other offering documents, to an online crowd funding platform for
dissemination to interested investors, which was done.
3. The PPM and other offering documents used by Patel were materially misleading
and deceived investors regarding the terms of their investment.  The offering materials
represented that, a  s part of the hotel renovation project, DNA East Hartford would obtain a
ground lease for $540,000, plus an undefined “assignment cost” of $925,000.  Patel did not tell
investors that the “assignment cost” (i.e. one third of the funds raised from investors) was going
directly and immediately to him, as well as other material misrepresentations and omissions.
4. To funnel the $925,000 to himself, in February 2019, Patel orchestrated a
complex, layered, and purposely deceptive transaction involving the real owner of the property
involved in the lease and a newly-formed LLC – which he created and controlled, and to which
he gave the same name as the property’s actual owner.  By using the same name for this newly
created company, and other means, Patel concealed from investors that there were really two
companies involved on the “lessor” side of the transaction: the actual owner of the property, and
his own newly-created company.  Once the new LLC was injected as an intermediary between
DNA East Hartford and the actual owner, Patel used it as a vehicle for diverting the $925,000
“assignment cost” to himself.
5. Patel used diverted investor funds to advance the fraud and for at least $750,000
in personal expenses including:  $87,500 in payments to a yacht club, approximately $46,000 on

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travel and entertainment at casinos and elsewhere; and approximately $14,000 in direct cash
withdrawals.
6. As a result of the conduct alleged herein, Patel violated, and unless restrained and
enjoined will continue to violate, Section 17(a) of the Securities Act of 1933 (“Securities Act”)
[15 U.S.C. §§77q(a)], Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”)
[15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5]  .
7. The Commission seeks a permanent injunction against Patel, enjoining him from
engaging in transactions, acts, practices, and courses of business of the type alleged in this
Complaint, disgorgement of all ill-gotten gains from the unlawful conduct set forth in this
Complaint, together with prejudgment interest, and civil penalties pursuant to Section 20(d) of
the Securities Act [15 U.S.C. §77t(d)] and/or Section 21(d)(3) of the Exchange Act [15 U.S.C.
§78u(d)(3)].
8. In addition, the Commission seeks a conduct-based injunction against Patel,
permanently enjoining him from directly or indirectly, including, but not limited to, through any
entity owned or controlled by Patel, participating in the issuance, purchase, offer, or sale of any
security in an unregistered offering by an issuer, unless (i) Patel provides each potential
purchaser of the issued/offered securities with a copy of any Final Judgment in this matter
simultaneous with the first written (electronic or otherwise) communication sent to such potential
purchaser by or on behalf of Patel or any entities he owns or controls, and (ii) Patel provides
each current owner/holder of the offered/issued securities with a copy of any Final Judgment in
this matter within 45 days from the entry of such order.
JURISDICTION AND VENUE
9. This Court has jurisdiction over this action pursuant to Section 22(a) of the

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Securities Act [15 U.S.C. §77v(a)] and Sections 21(d), 21(e), and 27 of the Exchange Act [15
U.S.C. §§78u(d), 78u(e), and 78aa].
10. Venue lies with Court pursuant to Section 22(a) of the Securities Act [15 U.S.C.
§77v(a)] and Section 27 of the Exchange Act [15 U.S.C. §78aa].  Patel resides in the District of
Connecticut.  In addition, certain of the acts, practices, transactions and courses of business
alleged in this Complaint occurred within the District of Connecticut, and were effected, directly
or indirectly, by making use of means or instrumentalities of transportation or communication in
interstate commerce, or the mails.  For example, the hotel renovation project was located in
Connecticut and multiple companies used by Patel during the course of his fraudulent scheme
were Connecticut limited liability companies.
DEFENDANTS
11.  Rahulkumar M. Patel, aka Rahul Patel, age 46, is a resident of Riverside,
Connecticut.
RELATED INDIVIDUALS AND ENTITIES
12. DNA Lodging East Hartford LLC (“DNA East Hartford”) was a Connecticut
limited liability company organized by Patel.
13.  DNA Lodging LLC (“DNA Lodging”) was a Connecticut limited liability
company that Patel organized, purportedly to pursue investment opportunities in the hotel
industry.  Patel controlled DNA East Hartford through DNA Lodging, which operated indirectly
as the former’s managing member.
14. DNA Lodging East Hartford MM LLC (“DNA Manager”) was a Connecticut
limited liability company organized and controlled by Patel, of which DNA Lodging owned
100%.

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15. 363 Roberts Partners LLC (“363 Roberts-CT”) was a Connecticut limited liability
company with a principal office located in College Point, New York that had no affiliation or
connection with Patel other than through business dealings.
16. A second entity with exactly the same name, 363 Roberts Partners LLC (“363
Roberts-TX”), was a Texas limited liability company controlled by Patel.
17. M7 Investment Fund I LLC (“M7 LLC”), was a New Jersey limited liability
company organized, managed, and fully owned by Patel.  M7 LLC owned 5.01% of DNA
Lodging.
18. Person 1, age 43, is a childhood friend of Patel who operated a sports therapy
business in Lubbock, Texas.
PATEL’S FRAUDULENT OFFERING SCHEME
Patel Establishes and Controls a Series of Related Companies
19. In approximately January 2018, Patel established DNA Lodging purportedly to
pursue investment opportunities in the hotel industry.  In the same time frame he also established
DNA East Hartford and DNA Manager.  DNA Lodging owned 100% of DNA Manager which,
in turn, owned 10% of DNA East Hartford.  DNA East Hartford’s Certificate of Organization
filed with the State of Connecticut identified DNA Lodging as its agent, DNA Manager as its
managing member, and “Rahul Patel” as its organizer.
20. In approximately May 2018, Patel created an “Operating Agreement of DNA
Lodging LLC.”  DNA Lodging’s Operating Agreement identified three individuals (“the DNA
Partners”) as owners of 94.99% of the company, with the remaining 5.01%  owned by M7 LLC,
a New Jersey company owned, managed and controlled by Patel.  Unlike Patel, each of the DNA
Partners had significant years of experience in the hotel industry.  Each of the DNA Partners was

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acquainted with Patel, who approached each of them individually and requested that they assist
him by providing their names and resumes for the hotel venture.  The respective DNA Partners
agreed to the arrangement, and Patel paid each of them $20,000, but complete control of DNA
Lodging remained with Patel.
Patel Raises $2,750,500 with a Fraudulent Offering of
Membership Interests in DNA East Hartford

21. Through a series of communications, including emails and telephonic, Patel
developed, wrote, and edited a Confidential Private Placement Memorandum (“the PPM”), dated
September 21, 2018, for two of the entities he controlled, DNA Lodging and DNA East Hartford.
Patel had ultimate authority over the statements in the PPM, as well as related offering materials,
including its content and whether and how to communicate it.
22. The PPM specified that DNA East Hartford had been formed specifically to:
(i) acquire a leasehold interest, with a land purchase option, in the 130-key hotel
located at 363 Roberts Street, East Hartford CT;
(ii) renovate the existing hotel into 140 keys; and,
(iii) operate the hotel under the brand name of a major hotel chain.
The PPM offered “Units of LLC Membership Interests” (“units”) for a minimum investment of
$25,000 and had a target offering of $2,750,000.
23. Patel arranged for the PPM and other offering documents to be used in a private
offering of securities conducted through an online crowd funding platform.  Patel, through the
online platform, began the private offering shortly after September 21, 2018, and between
October and December 2018, successfully raised $2,750,500 from the sale of investment units in
DNA East Hartford to 70 investors nationwide.
24. The PPM and other related offering documents were materially misleading and

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deceived investors regarding the terms of their investment and the nature of the project.
25. According to the PPM and other offering documents, DNA East Hartford would
use proceeds from the offering to lease and refurbish a hotel, and to re-open it under the brand
name of a major chain.  The PPM identified the location of the hotel, and the property to be
leased, as 363 Roberts Street, East Hartford CT.
26. The “Overview: Investment Opportunity” section of the PPM described a “Low
Cost Entry” of a “$1,465,000 lease purchase (including $925k assignment cost) with an option to
buy land for $3.3MM within 5 years.”  Neither the overview section nor any other section of the
PPM, or any other offering materials provided to investors, disclosed that the “$925K
assignment cost” was, in fact, an immediate and direct diversion of roughly one-third of investor
funds to Patel, which he used for his personal benefit.  The omission of that information was
material and misled investors about how their invested money would be used.
27. The PPM developed and used by Patel to acquire investors also was materially
misleading as to how and from who DNA East Hartford would acquire the lease it described.
According to the PPM, DNA East Hartford would obtain a lease from the property owner,
described in the PPM as “363 Roberts Partners LLC,”  which was a limited liability company
based in Connecticut (“363 Roberts-CT”).  DNA East Hartford was specifically listed in the
PPM as the “Tenant,”  and 363 Roberts-CT was identified as DNA East Hartford’s landlord once
it became owner of the leasehold interest.
28.  Neither the PPM nor any other offering materials provided to investors disclosed
or suggested another tenant or any other party to the described leasing deal.  Specifically, Patel,
through the offering materials or otherwise, did not disclose to investors that he had acquired the
lease from the actual owner of the property located at 363 Roberts Street for $540,000, and that

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he had then assigned the lease to DNA East Hartford for $1,465,000, a mark-up of $925,000.
Patel completed this “bait and switch” by orchestrating a “double closing” on February 7, 2019,
with 363 Roberts-CT (the actual property owner) granting a ground lease for the hotel to 363
Roberts-TX (Patel’s newly created LLC) for $540,000.  363 Roberts-TX simultaneously
executed an “Assignment and Assumption of Lease” that assigned the ground lease to DNA East
Hartford for a “final closing price” of $1,465,000.  The omission of that information was
material and misled investors about Patel’s direct role in the transaction, his conflict of interest,
and the financial gain he would receive.
29. Patel also misled investors about possible sources of compensation that he, or
entities he controlled, might receive as a result of the project and their investments.  While Patel
listed a variety of ways he could be compensated for his role in the project, he omitted from the
PPM, Company Agreement, and any other information provided to investors, that Patel (or
anyone else associated with any of the entities he controlled) would take any compensation in
connection with any assignment of the lease.  The omission of that information was material and
misled investors.
30. Specifically, the PPM and Company Agreement identified potential compensation
for Patel, in relevant part, as (a) a one-time “Acquisition” fee in the amount of $165,000, due at
the purchase of the hotel, (b) a one-time Financing Consulting Fee of $123,000, due upon the
closing of the renovation financing;  (c) 50% of a one-time “Renovation/Construction
Management” fee equal to $425,000 (so $212,500) or 5% of the total budget required to open the
hotel, and (d) a share in revenues once the renovated hotel became profitable and investors were
repaid.
31. Most of the triggers for this potential compensation for Patel never even

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materialized.  The DNA East Hartford project ended up in shambles.  The hotel site remains
vacant, damaged, and idle years after its renovations should have been completed.  And, by at
least May 2020, Patel failed to provide investors the quarterly financial reports required by the
Company Agreement or to respond to their inquiries about the status of the hotel renovations,
and his entire fraudulent scheme unraveled.
32. The PPM also misled investors about the management of the project by
identifying each of the three DNA Partners as principals of DNA Lodging.  In fact, the DNA
Partners were, at best, figureheads who would not be involved in the hotel renovation project
beyond lending their names and resumes to bolster DNA Manager’s purported bona fides.  Patel,
not the DNA Partners, was the real and sole “principal” of DNA Lodging and it was he, not those
three, who managed and controlled the project.
33. Along with the material omissions in the offering materials, Patel advanced the
fraud by using the deceptive device of creating a new LLC – which he controlled – with the same
name as the actual owner of the property at 363 Roberts Street.  Patel knew that the actual owner
of the property was 363 Roberts-CT, a limited liability company organized in Connecticut.  On
or about February 27, 2018, Patel arranged to register with the Secretary of State in Texas a
limited liability company with the exact same name as the Connecticut LLC – 363 Roberts
Partners LLC.  By using the same name for this newly created company, Patel concealed from
investors that there were really two companies involved in the leasing arrangement: the actual
owner of the property, and his own newly-created company, 363 Roberts-TX.  The Texas-
registered LLC served only as a vehicle to funnel investors’ money to Patel.
34. Patel carried out this aspect of the deceptive scheme and device by, among other
things, enlisting a childhood friend (Person 1) to be listed as t he owner and sole principal of 363

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Roberts-TX.  Patel formulated the idea to create the Texas-registered LLC , directed all of the
actions to generate and file a Certificate of Formation in Texas, and provided Person 1 with
$50,000 of investor funds in return for Person 1 having lent his name as “Managing Member” of
the LLC and related tasks.  At all times Patel controlled all actions related to 363 Roberts-TX,
but nowhere on any materials relating to the LLC does his name appear.
35. An additional step in his deceptive scheme and device was the “double closing”
on February 7, 2019, with 363 Roberts-CT (the actual property owner) granting a ground lease
for the hotel to 363 Roberts-TX (the LLC Patel controlled) for $540,000, and 363 Roberts-TX
simultaneously executing an “Assignment and Assumption of Lease” that assigned the ground
lease to DNA East Hartford for a “final closing price” of $1,465,000.  Patel swiftly and
surreptitiously pocketed the $925,000 mark-up.
Patel Uses Investor Funds for Personal Expenses and To Advance His Fraud

36. Between October and December 2018, approximately $2,750,500 from the sale of
investment units to 70 investors was deposited into DNA East Hartford’s bank account.  Almost
immediately after investment money began coming in, and from at least the period October 2018
to February 2019, Patel transferred proceeds of the offering from DNA East Hartford’s bank
account to bank accounts in the names of DNA Lodging, M7 LLC, and 363 Roberts-TX, all of
which he controlled.  Without disclosure to investors, he then used monies from those accounts
for personal expenses, including:
(a) $761,365 to pay Patel’s personal expenses including $87,500 in payments to a yacht
club, approximately $46,000 on travel and entertainment at casinos and elsewhere;
and approximately $14,000 in cash withdrawals;

(b) $50,000 to pay Person 1 for setting up 363 Roberts-TX; and

(c) $60,000 in total to the DNA Partners ($20,000 each) in return for lending their names
and extensive hotel industry credentials to DNA Lodging, DNA Manager, and the
project.

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Patel also:

(a) used $12,500 of investor proceeds to make an additional payment to a yacht club
directly from the DNA East Hartford account; and

(b) transferred another $69,999 from the DNA East Hartford account to his personal bank
account.

FIRST CLAIM FOR RELIEF
FRAUD IN THE OFFER OR SALE OF SECURITIES
(Violations of Sections 17(a) of the Securities Act by Patel)

37. Paragraphs 1 through 36 above are re-alleged and incorporated by reference as if
fully set forth herein.
38. At all times relevant to the above allegations, the Units of Membership Interests
in DNA East Hartford were securities under Section 2(a)(1) of the Securities Act [15 U.S.C.
§77b(a)(1)].
39. By engaging in the conduct described above, defendant Patel, in the offer or sale
of securities, by use of the means or instruments of interstate commerce or of the mails, directly
or indirectly has:
(a) employed devices, schemes and artifices to defraud;
(b) obtained money or property by means of untrue statements of material facts or
omissions to state material facts necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading; and/or
(c) engaged in transactions, practices, and courses of business which operated or
would operate as a fraud or deceit upon purchasers or prospective purchasers.
40.   Defendant Patel acted intentionally, with severe recklessness and at least
negligently in the fraudulent conduct described above.
41. By reason of the conduct described above, defendant Patel violated Section 17(a)
of the Securities Act [15 U.S.C. §77q(a)] and will continue to do so unless enjoined.

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SECOND CLAIM FOR RELIEF
FRAUD IN CONNECTION WITH THE PURCHASE OR SALE OF SECURITIES
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder by Patel)

42. Paragraphs 1 through 36 above are re-alleged and incorporated by reference as if
fully set forth herein.
43. At all times relevant to the above allegations, the Units of Membership Interests
in DNA East Hartford were securities under Section 3(a)(10) of the Exchange Act [15 U.S.C.
§78c(a)(10)].
44. Defendant Patel, in connection with the purchase and sale of securities, by the use
of the means and instruments of interstate commerce and by the use of the mails, directly or
indirectly:
(a) used and employed devices, schemes and artifices to defraud;
(b) made untrue statements of material fact and omitted to state material facts
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and
(c) engaged in acts, practices, and courses of business which operated or would
have operated as a fraud and deceit upon purchasers and prospective purchasers of
securities.
45. Defendant Patel acted with scienter in that he knowingly or with severe
recklessness made the material misrepresentations and omissions and engaged in the fraudulent
conduct and/or scheme described above.
46. By reason of the conduct described above, the defendant violated Section 10(b) of
the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5] and
will continue to do so unless enjoined.

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PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
A. Enter a permanent injunction restraining defendant Patel, his agents, servants,
employees and attorneys, and those persons in active concert or participation with them who
receive actual notice of the injunction by personal service or otherwise, from violating Sections
17(a) of the Securities Act [15 U.S.C. §§77q(a)], and Section 10(b) of the Exchange Act [15
U.S.C. §§78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].
B. Enter a conduct-based injunction against Patel, permanently restraining him from
directly or indirectly, including, but not limited to, through any entity owned or controlled by
him, participating in the issuance, purchase, offer, or sale of any security in an unregistered
offering by an issuer, unless (i) Patel provides each potential purchaser of the issued/offered
securities with a copy of any Final Judgment in this matter simultaneous with the first written
(electronic or otherwise) communication sent to such potential purchaser by or on behalf of Patel
or any entities he owns or controls, and (ii) Patel provides each current owner/holder of the
offered/issued securities with a copy of any Final Judgment in this matter within 45 days from
the entry of such order.
C. Order the defendant to disgorge, with prejudgment interest, all ill-gotten gains
obtained by reason of the unlawful conduct alleged in this Complaint;
D. Order the defendant to pay civil monetary penalties pursuant to Section 20(d) of
the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C.
§ 78u(d)(3)];
E. Retain jurisdiction over this action to implement and carry out the terms of all
orders and decrees that may be entered; and

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F. Grant such other and further relief as this Court may deem just and proper.
JURY DEMAND
The Commission demands a jury in this matter for all claims so triable.

DATED this 21st day of July, 2021.

      Respectfully submitted,
//s//  Martin F. Healey
Martin F. Healey (D. CT. Bar No. 25093;
 Mass. Bar No. 227550)
Susan Cooke Anderson (D.C. Bar No. 978173)
      Ellen Bober Moynihan (Mass. Bar No. 567598)
      Susan Curtin (Mass. Bar No. 554550)

      SECURITIES AND EXCHANGE COMMISSION
Boston Regional Office
33 Arch St., 24
th
 Floor
Boston, MA 02110
Phone: (617) 573-8952 (Healey direct)
Fax: (617) 573-4590 (fax)
[email protected]
 (Healey email)

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UNITED STATES DISTRICT COURT 
DISTRICT OF CONNECTICUT 

 

 
SECURITIES AND EXCHANGE 
COMMISSION, 
    Plaintiff, 
 v. 
 
 
Rahulkumar M. Patel, 
  aka Rahul Patel, 
 
    Defendant. 
 

 
 

Civil Action No. 21-cv- 
 

JURY TRIAL DEMANDED 
 
 

 
COMPLAINT 

 Plaintiff, Securities and Exchange Commission (the “Commission”), alleges the 

following against the defendant: 

SUMMARY  

1. This is a securities fraud enforcement action.  Defendant Rahulkumar M. Patel, 

aka Rahul Patel (“Patel”), devised and executed a scheme to defraud investors through a private 

offering to purchase membership units, specifically referred to as securities, in a purported hotel 

venture that Patel controlled (“the hotel renovation project”).  Patel’s fraudulent scheme began as 

early as February 2018 and continued well into 2020.  Between October and December 2018, 

Patel raised approximately $2,750,500 from 70 investors who purchased membership units in 

DNA Lodging East Hartford LLC (“DNA East Hartford”), Patel’s limited liability company. 

DNA East Hartford, through Patel, represented to investors that it intended to use their invested 

money to lease, renovate, and reopen a hotel.  Instead, Patel used material misrepresentations and 

omissions, and a device, scheme and artifice to defraud, and diverted at least $925,000 of 

investor funds for his own personal benefit.    

Case 3:21-cv-00994   Document 1   Filed 07/21/21   Page 1 of 14



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2. Patel initiated the fraudulent offering using a September 21, 2018, 50-page private 

placement memorandum (“PPM”) for which he was a primary drafter and editor.  The PPM set 

out the purported terms of the investment and the proposed hotel renovation project.  Patel 

provided the PPM, along with other offering documents, to an online crowd funding platform for 

dissemination to interested investors, which was done.   

3. The PPM and other offering documents used by Patel were materially misleading 

and deceived investors regarding the terms of their investment.  The offering materials 

represented that, as part of the hotel renovation project, DNA East Hartford would obtain a 

ground lease for $540,000, plus an undefined “assignment cost” of $925,000.  Patel did not tell 

investors that the “assignment cost” (i.e. one third of the funds raised from investors) was going 

directly and immediately to him, as well as other material misrepresentations and omissions.   

4. To funnel the $925,000 to himself, in February 2019, Patel orchestrated a 

complex, layered, and purposely deceptive transaction involving the real owner of the property 

involved in the lease and a newly-formed LLC – which he created and controlled, and to which 

he gave the same name as the property’s actual owner.  By using the same name for this newly 

created company, and other means, Patel concealed from investors that there were really two 

companies involved on the “lessor” side of the transaction: the actual owner of the property, and 

his own newly-created company.  Once the new LLC was injected as an intermediary between 

DNA East Hartford and the actual owner, Patel used it as a vehicle for diverting the $925,000 

“assignment cost” to himself.    

5. Patel used diverted investor funds to advance the fraud and for at least $750,000 

in personal expenses including:  $87,500 in payments to a yacht club, approximately $46,000 on 

Case 3:21-cv-00994   Document 1   Filed 07/21/21   Page 2 of 14



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travel and entertainment at casinos and elsewhere; and approximately $14,000 in direct cash 

withdrawals.      

6. As a result of the conduct alleged herein, Patel violated, and unless restrained and 

enjoined will continue to violate, Section 17(a) of the Securities Act of 1933 (“Securities Act”) 

[15 U.S.C. §§77q(a)], Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) 

[15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].   

7. The Commission seeks a permanent injunction against Patel, enjoining him from 

engaging in transactions, acts, practices, and courses of business of the type alleged in this 

Complaint, disgorgement of all ill-gotten gains from the unlawful conduct set forth in this 

Complaint, together with prejudgment interest, and civil penalties pursuant to Section 20(d) of 

the Securities Act [15 U.S.C. §77t(d)] and/or Section 21(d)(3) of the Exchange Act [15 U.S.C. 

§78u(d)(3)]. 

8. In addition, the Commission seeks a conduct-based injunction against Patel, 

permanently enjoining him from directly or indirectly, including, but not limited to, through any 

entity owned or controlled by Patel, participating in the issuance, purchase, offer, or sale of any 

security in an unregistered offering by an issuer, unless (i) Patel provides each potential 

purchaser of the issued/offered securities with a copy of any Final Judgment in this matter 

simultaneous with the first written (electronic or otherwise) communication sent to such potential 

purchaser by or on behalf of Patel or any entities he owns or controls, and (ii) Patel provides 

each current owner/holder of the offered/issued securities with a copy of any Final Judgment in 

this matter within 45 days from the entry of such order. 

JURISDICTION AND VENUE 

9. This Court has jurisdiction over this action pursuant to Section 22(a) of the 

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Securities Act [15 U.S.C. §77v(a)] and Sections 21(d), 21(e), and 27 of the Exchange Act [15 

U.S.C. §§78u(d), 78u(e), and 78aa]. 

10. Venue lies with Court pursuant to Section 22(a) of the Securities Act [15 U.S.C. 

§77v(a)] and Section 27 of the Exchange Act [15 U.S.C. §78aa].  Patel resides in the District of 

Connecticut.  In addition, certain of the acts, practices, transactions and courses of business 

alleged in this Complaint occurred within the District of Connecticut, and were effected, directly 

or indirectly, by making use of means or instrumentalities of transportation or communication in 

interstate commerce, or the mails.  For example, the hotel renovation project was located in 

Connecticut and multiple companies used by Patel during the course of his fraudulent scheme 

were Connecticut limited liability companies.     

DEFENDANTS 

11.  Rahulkumar M. Patel, aka Rahul Patel, age 46, is a resident of Riverside, 

Connecticut.  

RELATED INDIVIDUALS AND ENTITIES 

12. DNA Lodging East Hartford LLC (“DNA East Hartford”) was a Connecticut 

limited liability company organized by Patel. 

13.  DNA Lodging LLC (“DNA Lodging”) was a Connecticut limited liability 

company that Patel organized, purportedly to pursue investment opportunities in the hotel 

industry.  Patel controlled DNA East Hartford through DNA Lodging, which operated indirectly 

as the former’s managing member. 

14. DNA Lodging East Hartford MM LLC (“DNA Manager”) was a Connecticut  

limited liability company organized and controlled by Patel, of which DNA Lodging owned 

100%. 

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15. 363 Roberts Partners LLC (“363 Roberts-CT”) was a Connecticut limited liability 

company with a principal office located in College Point, New York that had no affiliation or 

connection with Patel other than through business dealings. 

16. A second entity with exactly the same name, 363 Roberts Partners LLC (“363 

Roberts-TX”), was a Texas limited liability company controlled by Patel. 

17. M7 Investment Fund I LLC (“M7 LLC”), was a New Jersey limited liability 

company organized, managed, and fully owned by Patel.  M7 LLC owned 5.01% of DNA 

Lodging. 

18. Person 1, age 43, is a childhood friend of Patel who operated a sports therapy 

business in Lubbock, Texas. 

PATEL’S FRAUDULENT OFFERING SCHEME 

Patel Establishes and Controls a Series of Related Companies 

19. In approximately January 2018, Patel established DNA Lodging purportedly to 

pursue investment opportunities in the hotel industry.  In the same time frame he also established 

DNA East Hartford and DNA Manager.  DNA Lodging owned 100% of DNA Manager which, 

in turn, owned 10% of DNA East Hartford.  DNA East Hartford’s Certificate of Organization 

filed with the State of Connecticut identified DNA Lodging as its agent, DNA Manager as its 

managing member, and “Rahul Patel” as its organizer.    

20. In approximately May 2018, Patel created an “Operating Agreement of DNA 

Lodging LLC.”  DNA Lodging’s Operating Agreement identified three individuals (“the DNA 

Partners”) as owners of 94.99% of the company, with the remaining 5.01%  owned by M7 LLC, 

a New Jersey company owned, managed and controlled by Patel.  Unlike Patel, each of the DNA 

Partners had significant years of experience in the hotel industry.  Each of the DNA Partners was 

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acquainted with Patel, who approached each of them individually and requested that they assist 

him by providing their names and resumes for the hotel venture.  The respective DNA Partners 

agreed to the arrangement, and Patel paid each of them $20,000, but complete control of DNA 

Lodging remained with Patel. 

Patel Raises $2,750,500 with a Fraudulent Offering of  
Membership Interests in DNA East Hartford 

 
21. Through a series of communications, including emails and telephonic, Patel 

developed, wrote, and edited a Confidential Private Placement Memorandum (“the PPM”), dated 

September 21, 2018, for two of the entities he controlled, DNA Lodging and DNA East Hartford.  

Patel had ultimate authority over the statements in the PPM, as well as related offering materials, 

including its content and whether and how to communicate it.    

22. The PPM specified that DNA East Hartford had been formed specifically to: 

(i) acquire a leasehold interest, with a land purchase option, in the 130-key hotel 

located at 363 Roberts Street, East Hartford CT; 

(ii) renovate the existing hotel into 140 keys; and, 

(iii) operate the hotel under the brand name of a major hotel chain. 

The PPM offered “Units of LLC Membership Interests” (“units”) for a minimum investment of 

$25,000 and had a target offering of $2,750,000. 

23. Patel arranged for the PPM and other offering documents to be used in a private 

offering of securities conducted through an online crowd funding platform.  Patel, through the 

online platform, began the private offering shortly after September 21, 2018, and between 

October and December 2018, successfully raised $2,750,500 from the sale of investment units in 

DNA East Hartford to 70 investors nationwide. 

24. The PPM and other related offering documents were materially misleading and 

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deceived investors regarding the terms of their investment and the nature of the project. 

25. According to the PPM and other offering documents, DNA East Hartford would 

use proceeds from the offering to lease and refurbish a hotel, and to re-open it under the brand 

name of a major chain.  The PPM identified the location of the hotel, and the property to be 

leased, as 363 Roberts Street, East Hartford CT.    

26. The “Overview: Investment Opportunity” section of the PPM described a “Low 

Cost Entry” of a “$1,465,000 lease purchase (including $925k assignment cost) with an option to 

buy land for $3.3MM within 5 years.”  Neither the overview section nor any other section of the 

PPM, or any other offering materials provided to investors, disclosed that the “$925K 

assignment cost” was, in fact, an immediate and direct diversion of roughly one-third of investor 

funds to Patel, which he used for his personal benefit.  The omission of that information was 

material and misled investors about how their invested money would be used. 

27. The PPM developed and used by Patel to acquire investors also was materially 

misleading as to how and from who DNA East Hartford would acquire the lease it described.  

According to the PPM, DNA East Hartford would obtain a lease from the property owner, 

described in the PPM as “363 Roberts Partners LLC,” which was a limited liability company 

based in Connecticut (“363 Roberts-CT”).  DNA East Hartford was specifically listed in the 

PPM as the “Tenant,” and 363 Roberts-CT was identified as DNA East Hartford’s landlord once 

it became owner of the leasehold interest. 

28.  Neither the PPM nor any other offering materials provided to investors disclosed 

or suggested another tenant or any other party to the described leasing deal.  Specifically, Patel, 

through the offering materials or otherwise, did not disclose to investors that he had acquired the 

lease from the actual owner of the property located at 363 Roberts Street for $540,000, and that 

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he had then assigned the lease to DNA East Hartford for $1,465,000, a mark-up of $925,000.  

Patel completed this “bait and switch” by orchestrating a “double closing” on February 7, 2019, 

with 363 Roberts-CT (the actual property owner) granting a ground lease for the hotel to 363 

Roberts-TX (Patel’s newly created LLC) for $540,000.  363 Roberts-TX simultaneously 

executed an “Assignment and Assumption of Lease” that assigned the ground lease to DNA East 

Hartford for a “final closing price” of $1,465,000.  The omission of that information was 

material and misled investors about Patel’s direct role in the transaction, his conflict of interest, 

and the financial gain he would receive.  

29. Patel also misled investors about possible sources of compensation that he, or 

entities he controlled, might receive as a result of the project and their investments.  While Patel 

listed a variety of ways he could be compensated for his role in the project, he omitted from the 

PPM, Company Agreement, and any other information provided to investors, that Patel (or 

anyone else associated with any of the entities he controlled) would take any compensation in 

connection with any assignment of the lease.  The omission of that information was material and 

misled investors.    

30. Specifically, the PPM and Company Agreement identified potential compensation 

for Patel, in relevant part, as (a) a one-time “Acquisition” fee in the amount of $165,000, due at 

the purchase of the hotel, (b) a one-time Financing Consulting Fee of $123,000, due upon the 

closing of the renovation financing;  (c) 50% of a one-time “Renovation/Construction 

Management” fee equal to $425,000 (so $212,500) or 5% of the total budget required to open the 

hotel, and (d) a share in revenues once the renovated hotel became profitable and investors were 

repaid. 

31. Most of the triggers for this potential compensation for Patel never even 

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materialized.  The DNA East Hartford project ended up in shambles.  The hotel site remains 

vacant, damaged, and idle years after its renovations should have been completed.  And, by at 

least May 2020, Patel failed to provide investors the quarterly financial reports required by the 

Company Agreement or to respond to their inquiries about the status of the hotel renovations, 

and his entire fraudulent scheme unraveled.   

32. The PPM also misled investors about the management of the project by 

identifying each of the three DNA Partners as principals of DNA Lodging.  In fact, the DNA 

Partners were, at best, figureheads who would not be involved in the hotel renovation project 

beyond lending their names and resumes to bolster DNA Manager’s purported bona fides.  Patel, 

not the DNA Partners, was the real and sole “principal” of DNA Lodging and it was he, not those 

three, who managed and controlled the project.   

33. Along with the material omissions in the offering materials, Patel advanced the 

fraud by using the deceptive device of creating a new LLC – which he controlled – with the same 

name as the actual owner of the property at 363 Roberts Street.  Patel knew that the actual owner 

of the property was 363 Roberts-CT, a limited liability company organized in Connecticut.  On 

or about February 27, 2018, Patel arranged to register with the Secretary of State in Texas a 

limited liability company with the exact same name as the Connecticut LLC – 363 Roberts 

Partners LLC.  By using the same name for this newly created company, Patel concealed from 

investors that there were really two companies involved in the leasing arrangement: the actual 

owner of the property, and his own newly-created company, 363 Roberts-TX.  The Texas-

registered LLC served only as a vehicle to funnel investors’ money to Patel.    

34. Patel carried out this aspect of the deceptive scheme and device by, among other 

things, enlisting a childhood friend (Person 1) to be listed as the owner and sole principal of 363 

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Roberts-TX.  Patel formulated the idea to create the Texas-registered LLC , directed all of the 

actions to generate and file a Certificate of Formation in Texas, and provided Person 1 with 

$50,000 of investor funds in return for Person 1 having lent his name as “Managing Member” of 

the LLC and related tasks.  At all times Patel controlled all actions related to 363 Roberts-TX, 

but nowhere on any materials relating to the LLC does his name appear.  

35. An additional step in his deceptive scheme and device was the “double closing” 

on February 7, 2019, with 363 Roberts-CT (the actual property owner) granting a ground lease 

for the hotel to 363 Roberts-TX (the LLC Patel controlled) for $540,000, and 363 Roberts-TX 

simultaneously executing an “Assignment and Assumption of Lease” that assigned the ground 

lease to DNA East Hartford for a “final closing price” of $1,465,000.  Patel swiftly and 

surreptitiously pocketed the $925,000 mark-up.   

Patel Uses Investor Funds for Personal Expenses and To Advance His Fraud 
 

36. Between October and December 2018, approximately $2,750,500 from the sale of 

investment units to 70 investors was deposited into DNA East Hartford’s bank account.  Almost 

immediately after investment money began coming in, and from at least the period October 2018 

to February 2019, Patel transferred proceeds of the offering from DNA East Hartford’s bank 

account to bank accounts in the names of DNA Lodging, M7 LLC, and 363 Roberts-TX, all of 

which he controlled.  Without disclosure to investors, he then used monies from those accounts 

for personal expenses, including:    

(a) $761,365 to pay Patel’s personal expenses including $87,500 in payments to a yacht 
club, approximately $46,000 on travel and entertainment at casinos and elsewhere; 
and approximately $14,000 in cash withdrawals; 
 

(b) $50,000 to pay Person 1 for setting up 363 Roberts-TX; and 
 
(c) $60,000 in total to the DNA Partners ($20,000 each) in return for lending their names 

and extensive hotel industry credentials to DNA Lodging, DNA Manager, and the 
project. 

 

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Patel also: 
 

(a) used $12,500 of investor proceeds to make an additional payment to a yacht club 
directly from the DNA East Hartford account; and 

 
(b) transferred another $69,999 from the DNA East Hartford account to his personal bank 

account.  
 

 
FIRST CLAIM FOR RELIEF 

FRAUD IN THE OFFER OR SALE OF SECURITIES 
(Violations of Sections 17(a) of the Securities Act by Patel) 

 
37. Paragraphs 1 through 36 above are re-alleged and incorporated by reference as if 

fully set forth herein. 

38. At all times relevant to the above allegations, the Units of Membership Interests 

in DNA East Hartford were securities under Section 2(a)(1) of the Securities Act [15 U.S.C. 

§77b(a)(1)]. 

39. By engaging in the conduct described above, defendant Patel, in the offer or sale 

of securities, by use of the means or instruments of interstate commerce or of the mails, directly 

or indirectly has:  

(a) employed devices, schemes and artifices to defraud;  

(b) obtained money or property by means of untrue statements of material facts or  

omissions to state material facts necessary in order to make the statements made, 

in light of the circumstances under which they were made, not misleading; and/or  

(c) engaged in transactions, practices, and courses of business which operated or 

would operate as a fraud or deceit upon purchasers or prospective purchasers. 

40.   Defendant Patel acted intentionally, with severe recklessness and at least 

negligently in the fraudulent conduct described above. 

41. By reason of the conduct described above, defendant Patel violated Section 17(a) 

of the Securities Act [15 U.S.C. §77q(a)] and will continue to do so unless enjoined. 

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SECOND CLAIM FOR RELIEF 
FRAUD IN CONNECTION WITH THE PURCHASE OR SALE OF SECURITIES 

(Violations of Section 10(b) of the Exchange Act and Rule 10b-5  
thereunder by Patel) 

 
42. Paragraphs 1 through 36 above are re-alleged and incorporated by reference as if 

fully set forth herein. 

43. At all times relevant to the above allegations, the Units of Membership Interests 

in DNA East Hartford were securities under Section 3(a)(10) of the Exchange Act [15 U.S.C. 

§78c(a)(10)]. 

44. Defendant Patel, in connection with the purchase and sale of securities, by the use 

of the means and instruments of interstate commerce and by the use of the mails, directly or 

indirectly:  

(a) used and employed devices, schemes and artifices to defraud;  

(b) made untrue statements of material fact and omitted to state material facts 

necessary in order to make the statements made, in light of the circumstances 

under which they were made, not misleading; and  

(c) engaged in acts, practices, and courses of business which operated or would 

have operated as a fraud and deceit upon purchasers and prospective purchasers of 

securities. 

45. Defendant Patel acted with scienter in that he knowingly or with severe 

recklessness made the material misrepresentations and omissions and engaged in the fraudulent 

conduct and/or scheme described above. 

46. By reason of the conduct described above, the defendant violated Section 10(b) of 

the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5] and 

will continue to do so unless enjoined. 

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PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that this Court: 

A. Enter a permanent injunction restraining defendant Patel, his agents, servants, 

employees and attorneys, and those persons in active concert or participation with them who 

receive actual notice of the injunction by personal service or otherwise, from violating Sections 

17(a) of the Securities Act [15 U.S.C. §§77q(a)], and Section 10(b) of the Exchange Act [15 

U.S.C. §§78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5]. 

B. Enter a conduct-based injunction against Patel, permanently restraining him from 

directly or indirectly, including, but not limited to, through any entity owned or controlled by 

him, participating in the issuance, purchase, offer, or sale of any security in an unregistered 

offering by an issuer, unless (i) Patel provides each potential purchaser of the issued/offered 

securities with a copy of any Final Judgment in this matter simultaneous with the first written 

(electronic or otherwise) communication sent to such potential purchaser by or on behalf of Patel 

or any entities he owns or controls, and (ii) Patel provides each current owner/holder of the 

offered/issued securities with a copy of any Final Judgment in this matter within 45 days from 

the entry of such order. 

C. Order the defendant to disgorge, with prejudgment interest, all ill-gotten gains 

obtained by reason of the unlawful conduct alleged in this Complaint; 

D. Order the defendant to pay civil monetary penalties pursuant to Section 20(d) of 

the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. 

§ 78u(d)(3)];  

E. Retain jurisdiction over this action to implement and carry out the terms of all 

orders and decrees that may be entered; and  

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F. Grant such other and further relief as this Court may deem just and proper. 

JURY DEMAND 

The Commission demands a jury in this matter for all claims so triable. 

 

DATED this 21st day of July, 2021. 

 

      Respectfully submitted, 

//s//  Martin F. Healey 
Martin F. Healey (D. CT. Bar No. 25093; 
 Mass. Bar No. 227550) 
Susan Cooke Anderson (D.C. Bar No. 978173) 

      Ellen Bober Moynihan (Mass. Bar No. 567598) 
      Susan Curtin (Mass. Bar No. 554550) 
 
      SECURITIES AND EXCHANGE COMMISSION 

Boston Regional Office 
33 Arch St., 24th Floor  
Boston, MA 02110 
Phone: (617) 573-8952 (Healey direct)  
Fax: (617) 573-4590 (fax) 
[email protected] (Healey email) 

 

 

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